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US third-quarter growth rate revised up to 3.9%

US economic growth was far stronger than initially thought in the third quarter, pointing to strengthening fundamentals that should support the economy for the rest of the year.

PHOTO: AFP

[WASHINGTON] US economic growth was far stronger than initially thought in the third quarter, pointing to strengthening fundamentals that should support the economy for the rest of the year.

The Commerce Department on Tuesday raised its estimate of gross domestic product to a 3.9 per cent annual pace from the 3.5 per cent rate reported last month, reflecting upward revisions to business and consumer spending.

Growth had increased at a 4.6 per cent rate in the second quarter. The economy has now experienced the two strongest back-to-back quarters of growth since 2003.

Economists polled by Reuters had expected growth would be cut to a 3.3 per cent pace.

Inventories were also revised higher, with restocking now only accounting for a mild drag to GDP growth. That also helped to offset downward revisions to export growth.

Inventories, however, could weigh on growth in the final three months of the year. Spending on residential construction was also revised higher.

It was the fourth quarter out of the past five that the economy has expanded above a 3.5 per cent pace. Data ranging from manufacturing to employment and retail sales suggest the economy retained some of that momentum early in the fourth quarter.

The United States remains a bright spot in an increasingly gloomy global economy, with Japan back in recession and growth in the euro zone and China slowing significantly.

The US GDP report also showed corporate profits after tax grew at a 3.2 per cent rate in the third quarter, slowing from the second quarter's robust 8.6 per cent pace.

The brisk economic growth pace could boost expectations the Federal Reserve will start raising its short-term interest rate sometime in mid-2015. The US central bank has kept its benchmark lending rate near zero since December 2008.

Underscoring the economy's firming fundamentals, growth in domestic demand was revised up to a 3.2 per cent pace in the third quarter instead of the previously reported 2.7 per cent pace.

Consumer spending, which accounts for more than two-thirds of US economic activity, grew at a 2.2 per cent pace instead of the previously reported 1.8 per cent rate.

Growth in business investment was raised to a 7.1 per cent pace from a 5.5 per cent rate, with a stronger pace of spending on equipment than previously thought accounting for the bulk of the revision.

Export growth was lowered to a 4.9 per cent rate from the previously reported 7.8 per cent rate, while imports were revised up. That left a trade deficit that contributed 0.78 percentage point to GDP growth instead of the previously reported 1.32 percentage points.

Government spending also was cut, as outlays at state and local governments were not as strong as previously reported.